Key Points Summary
The July non-farm payroll report in the United States came as a major surprise: The number of jobs created unexpectedly decreased by 23,000, and the figures for May and June were also significantly revised downward (a total decrease of 103,000 jobs). Although the unemployment rate appeared to decline (from 4.2% to 4.1%), this was actually due to 264,000 people withdrawing from the labor market, causing the labor participation rate to drop to a nearly 50-year low (the lowest since 1976, except during the pandemic). There is a clear divergence in job growth across industries, with declines in education, retail, and finance, while healthcare growth has been weak. This report has raised doubts about whether the Federal Reserve will raise interest rates in September, and opinions among institutions regarding interest rate trends by the end of the year have intensified—some believe further rate hikes are needed, while others think cuts are more appropriate; the final decision may depend on next week’s inflation data.
1. The “Surprising” Non-Farm Data: More Than Just a Reduction
The July non-farm payroll figure showed a direct “negative growth” of 23,000 jobs, which exceeded market expectations. Even worse, the previously released figures for May and June were significantly revised downward: June’s job increase was cut from 57,000 to 20,000, and May’s figure was also revised lower, resulting in a total decrease of 103,000 jobs over those two months.
Why is this happening? On one hand, there are seasonal factors: Temporary jobs related to the World Cup have disappeared, and summer is traditionally a slow season for job growth. On the other hand, companies’ willingness to hire has weakened—private sector employment data (ADP) has also been weak, and the average hourly wage growth rate in July dropped to 3.2% (the lowest since May 2021), indicating that companies are reluctant to increase wages or hire new employees.
2. The Declining Unemployment Rate Is a “Misleading Signal”: Labor Participation Rate Hits a 50-Year Low
A decrease in the unemployment rate from 4.2% to 4.1% might seem positive, but it’s not actually good news. This is because 264,000 people have simply withdrawn from the labor market—meaning they are neither working nor looking for work.
The labor participation rate (the proportion of the population willing to work or currently looking for a job) has dropped to 61.4%, the lowest level since 1976, except during the pandemic. In other words, more and more people are choosing not to work, reducing the supply of labor and thus lowering the unemployment rate.
3. Divergent Job Growth Across Industries: Some Suffer, Others Survive
Looking at different industries, the situation varies greatly:
- Declining Industries: Government education jobs decreased by 50,000 (likely due to the end of summer temporary positions); the retail industry (warehousing and membership stores, large supermarkets) lost 19,000 jobs (weak consumer demand); the financial sector lost 14,000 jobs (a cumulative decrease of 121,000 since May 2025, possibly due to high interest rates).
- Slightly Growing Industries: Healthcare added 22,000 jobs, but this is significantly less than the average monthly increase of 36,000 over the past year; construction and manufacturing have seen little change (indicating that these industries are not expanding or laying off employees).
4. The Federal Reserve’s Dilemma: Raise Rates to Fight Inflation or Preserve Jobs?
The Federal Reserve is in a difficult position:
- Raising rates is intended to curb inflation (which is currently far above the 2% target), but it will hurt corporate hiring and investment, exacerbating the already weak job market.
- Not raising rates may not lower inflation, rendering previous rate hikes ineffective.
When the FOMC voted to keep interest rates unchanged, there were already three votes in favor of raising rates. With weaker employment data, officials face an even harder decision: should they continue to raise rates to fight inflation or pause them to protect jobs?
5. Divided Opinions Among Institutions: Some Want Hikes, Others Want Cuts, with Inflation as the Deciding Factor
After this report, opinions among institutions about the Fed’s interest rate path by the end of the year have become clear:
- Bank of America: Still believes a 75-basis-point rate hike is needed this year (possibly starting in September), with the Fed focusing on inflation rather than jobs.
- Citibank: Thinks the probability of further rate hikes is low, and the next move might be to cut rates (in October).
- JPMorgan Chase: The July data reduces the pressure for a September hike, but next week’s inflation data will be crucial—if inflation exceeds expectations, the Fed may still raise rates despite weak job prospects.
- Annex Wealth Management: Rate hikes could be more harmful than the problem itself, as they mainly affect manufacturing, while commodity inflation is driven by tariffs and energy costs, not loose monetary policy; therefore, reducing the balance sheet might be a better approach.
The market’s reaction was immediate: CME’s FedWatch tool shows that the probability of a September rate hike has dropped from a high level to 44%, and the probability for October has risen to 58.3%. Everyone is now waiting for next week’s inflation data, which will determine the Fed’s next move.
In Summary: The U.S. job market is weaker than expected, and the Federal Reserve is caught in a dilemma of whether to raise rates to fight inflation or pause them to protect jobs. Institutions are in disagreement, and the final decision will depend on inflation data. For individuals, it’s worth noting that if the probability of rate hikes decreases, the stock market may rebound in the short term; if inflation remains high, further rate hikes are likely, leading to increased loan costs (mortgages and car loans).